Why sending money overseas is expensive?

As an expat I have been sending money overseas for a long time and I have always wondered why it is still that expensive in the 21st century? It seems that the industry has not changed much for the last decades. Let’s try to understand why.


Sending money overseas is very lucrative

The industry has been dominated by 2 major actors for a very long time: Banks and Money transfer operators such as Western Union or Moneygram. According to the World Bank, the cost of sending money overseas each year is of $32 billion. This money goes directly to the actors I have just mentioned. Can you image what we could do if we manage to reduce that cost?

The worst think with banks and MTO (money transfer operators) is that they make you believe that sending money overseas is cheap or sometimes free. They are so good at marketing and manipulation that everyone is going for them. But there is one thing you should know: free money transfers simply do not exist.

First, you will always pay a certain fee, either fixed or variable. Then, the most pernicious thing they do is that they generally apply a poor exchange rate, meaning that they will make money due to the difference between the real exchange rate and the one they have applied to you.

How sending money overseas can be cheap?

You first have to stop trusting your bank or misleading advertising trying to sell you free money transfer. Always look for the small asterisk with sneaky conditions. Let me give you 2 tips to make sending money overseas cheap:

–       First make sure you monitor the exchange rate. If you send money when the exchange rate is low, you’ll be indirectly losing money right? It seems logical but very few people actually do it.

–       Second: find and compare services before sending money overseas. There are many new actors today on the market such as Transferwise that allow you to send money at almost no costs. They do not have hidden fees and you end up paying only 2% of the amount transferred. Nothing compared to the 10% of banks! The only issue with these new actors is that there are many of them covering different areas of the world. So there is a growing need to compare them.

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